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Chapter_13_Study_Guide

Chapter_13_Study_Guide - Outline for Chapter 13 Price is...

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Outline for Chapter 13 Price – is the money or other consideration s (including other goods and services) exchanged for the ownership or use of a good or service. Barter – practice of exchanging goods and services for other goods and services rather than for money. Discounts, allowances, and rebates make the effective price lower, other marketing tactics raise the real price. Consumers are willing to pay more ‘surcharges’ and ‘extra fees’ than a higher list price. Price Equation: Item Purchased Price = List Price - (minus)Incentives and allowances + Extra Fees New Car bought by an individual Final Price =list price - rebate cash discount old car trade-in +Financing charges, special accessories, destination charges Term in college bought by a student Tuition =Published Tution -Scholarship, other financial aid discounts for number of credits taken +Special activity fees Merchandise bought from a wholesaler by a retailer Invoice price =list price - quanity discount, cash discount, seasonal discount, functional or trade discount +Penalty for late payment Final Price = List price – (Incentives + Allowances) + Extra Fees. I. Price as an indicator of Value: Value – is the ratio of perceived benefits to price, or Value = Perceived Benefits/price Value-Pricing – the practice of simultaneously increasing product and service benefits while maintaining or decreasing price.
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II. Price in the Marketing Mix – Profit Equation – Profit = Total Revenue – Total Cost. = (Unite Price x Quantity Sold) – (Fixed Cost + Variable Cost) Six Major Steps in the process of setting price – 1. Identify pricing objectives and constraints. (Profits, market share, survival. Constraints like demand for product class and brand newness, cost and competition) 2. Estimates demand and revenue (Demand estimation. Sales Revenue estimation. Price elasticity estimation.) 3. Determine cost, volume, and profit relationships (Cost estimation. Marginal analysis, in relation to profit.) 4. Select an approximate price level 5. Set list or quoted price 6. Make special adjustments to list or quoted price. (Only first three steps are covered in Chapter 13) III. Identifying Pricing Objectives Pricing Objectives – involve specifying the role of price in an organization’s marketing and strategic plans. -Profit – three different objectives relate to a firm’s profit which is often measured in terms of return on investment, ROI, or return on assets ROA. Objectives: 1. Managing for the long-run profits – in which a company gives up immediate profit in exchange for achieving a higher market share by developing quality products to penetrate competitive markets over the long term. (relies on high market share to make greater profits) 2. Maximizing Current Profit Objective – such as for a quarter or a year, common in many firms because the targets can be set and performance measured quickly.
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